Which of the following is a liability account?
Liability accounts are a crucial component of a company’s financial statements, representing the obligations or debts that the company owes to external parties. In this article, we will explore the different types of liability accounts and help you identify which one is the correct answer to the question.
Liability accounts can be categorized into current liabilities and long-term liabilities. Current liabilities are obligations that are expected to be settled within one year or the operating cycle of the business, whichever is longer. Some common examples of current liabilities include accounts payable, accrued expenses, and short-term loans. These accounts are typically reported on the balance sheet under the current liabilities section.
On the other hand, long-term liabilities are obligations that are expected to be settled over a period longer than one year. Examples of long-term liabilities include long-term loans, bonds payable, and deferred tax liabilities. These accounts are also reported on the balance sheet, but under the long-term liabilities section.
Now, let’s examine the different types of accounts mentioned in the question and determine which one is a liability account.
1. Accounts Receivable: This is an asset account, representing the amounts owed to the company by its customers for goods or services sold on credit. Therefore, accounts receivable is not a liability account.
2. Cash: Cash is an asset account, representing the company’s cash on hand or in the bank. It is not a liability account.
3. Prepaid Expenses: Prepaid expenses are asset accounts, representing payments made in advance for goods or services that will be received in the future. Prepaid expenses are not a liability account.
4. Accounts Payable: This is a liability account, representing the amounts the company owes to its suppliers for goods or services purchased on credit. Accounts payable are typically due within a short period, making them a current liability.
5. Notes Payable: Notes payable are also a liability account, representing formal written promises to pay a specific amount of money on a future date. These obligations can be either short-term or long-term, depending on the terms of the note.
In conclusion, the correct answer to the question “Which of the following is a liability account?” is either “Accounts Payable” or “Notes Payable.” Both of these accounts represent the company’s obligations to external parties and are classified as current or long-term liabilities on the balance sheet.
